Pfizer (PFE) Down 1.9% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Pfizer (PFE). Shares have lost about 1.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Pfizer due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Pfizer Q1 Earnings Top, Biopharma Gains From Coronavirus

Pfizer reported first-quarter 2020 adjusted earnings per share of 80 cents, which beat the Zacks Consensus Estimate of 71 cents. Earnings however declined 5% year over year as lower revenues offset spending reductions.

Revenues came in at $12.03 billion, which declined 8% from the year-ago quarter on a reported basis. On an operational basis, excluding the 1% negative impact of currency, revenues declined 7% year over year as higher sales of some key brands in Pfizer’s Biopharmaceuticals group was offset by revenue decline in the Upjohn segment and sales lost due to the spin-off of the Consumer Healthcare (CHC) unit.

In the quarter, Pfizer saw slower rates of new prescriptions for certain drugss and fewer vaccines administered due to widespread restrictions on patient visits to doctors amid coronavirus-related lockdown. However, it expects the impact of these factors to be more significant in the second quarter. Meanwhile, some of Pfizer’s medicines —- Prevnar 13/Prevenar 13 and certain of its hospital products —saw increased demand as Pfizer believes they were prescribed to COVID-19 patients though not approved to treat the same. Meanwhile, Pfizer also saw an increase in wholesaler buying patterns for Eliquis due to COVID-19. Overall, first-quarter revenues included a net positive impact of approximately $150 million, or 1%, due to COVID-19. Pfizer did not see a significant disruption in its supply chain as a result of the pandemic.

Importantly, excluding the spin-off of the Consumer Healthcare (CHC) unit, first-quarter revenues declined 1% operationally. International revenues declined 8% to $6.38 billion. On an operational basis, international sales declined 6% in the quarter. U.S. revenues declined 8% to $5.65 billion.

Adjusted selling, informational and administrative (SI&A) expenses declined 16% (operationally) in the quarter to $2.75 billion. Adjusted R&D expenses rose 2% to $1.73 billion.

Segment Discussion

Pfizer Biopharma sales grew 11% on a reported basis (up 12% an operational basis) from the year-ago period to $10 billion. Higher sales of brands like Eliquis, Ibrance, Inlyta and Vyndaqel/Vyndamax and higher biosimilars and emerging market revenues drove this segment’s sales growth. Weaker sales of Prevnar 13/Prevenar 13 in the United States and Enbrel internationally offset the increase.

Within the Biopharma group, Oncology revenues increased 25% (on an operational basis) to $2.44 billion. Vaccine revenues rose 1% to $1.61 billion. Internal Medicine rose 10% to $2.33 billion. The Inflammation & Immunology franchise declined 4% to $978 million. The portfolio of Rare Disease rose 38% to $639 million. Hospital sub-segment’s sales rose 11% to $2.01 billion. The Hospital segment comprises Pfizer’s global portfolio of sterile injectable and anti-infective medicines.

In the Hospital segment Pfizer saw an increase in demand for certain of its anti-infective medicines, as well as other sterile injectable products utilized in the incubation and ongoing treatment of mechanically ventilated COVID-19 patients.

Pfizer’s Upjohn group’s sales declined 37%, both on a reported and operational basis, to $2.02 billion mainly due to U.S. loss of exclusivity of Lyrica and lower sales of Lipitor and Norvasc in China, following the implementation of the VBP program in the country in December 2019. Upjohn revenues in China declined 41% operationally.

Performance of Key Drugs

Ibrance revenues rose 11% year over year to $1.25 billion as continued strong uptake in emerging markets and increased volumes and continued CDK class markets share gains in the United States offset the impact of pricing pressure in developed European markets.

Xeljanz sales rose 8% to $451 million driven mainly by growth in international markets. International sales rose 38% driven by continued uptake in the rheumatoid arthritis (RA) indication as well as from the recent launch of the ulcerative colitis (UC) indication in certain developed market. U.S. sales of Xeljanz rose 4% as higher volumes were offset by higher rebating from new commercial contracts and temporary lowering of wholesaler inventories in the quarter. However, Pfizer said that the wholesaler inventory levels for Xeljanz were restored to normal levels in early April.

Inlyta revenues were $169 million in the quarter, much higher than $73 million in the year-ago quarter, driven mainly by 255% growth in the United States. U.S. sales gained from increased uptake resulting from recent FDA approvals for the combination of Inlyta plus Bavencio and Inlyta plus Keytruda in first-line treatment of advanced renal cell carcinoma patients.

Global Prevnar 13/Prevenar 13 revenues declined 1% to $1.45 billion. Prevnar 13 revenues declined 10% in the United States, reflecting unfavorable timing of government purchases for the pediatric indication.Prevenar 13 revenues rose 11% in international markets

Enbrel revenues declined 21% to $347 million in key European markets due to continued biosimilar competition.

Eliquis alliance revenues and direct sales rose 29% to $1.3 billion driven by continued increased adoption in nonvalvular atrial fibrillation as well as oral anticoagulant market share gains. Xalkori sales rose 24% to $149 million. Xtandi recorded alliance revenues of $209 million in the quarter, up 25% year over year. Sutent sales declined 9% to $205 million. Chantix sales were flat at $270 million in the quarter.

Importantly, new drug Vyndaqel/Vyndamax recorded sales of $231 million in the quarter compared with $213 million in the previous quarter, driven by strong performance in the United States. However, Pfizer saw a slowdown in new diagnosis in April due to lockdown restrictions as fewer patients visited doctors.

Braftovi and Mektovi, which Pfizer acquired following its acquisition of Array BioPharma in 2019, recorded sales of $37 million each in the first quarter of 2020 versus $30 million in the previous quarter

Total biosimilar revenues were $288 million, up 63% year over year. Inflectra/ Remsima recorded sales of $158 million globally, up 15% year over year. New biosimilar product, Retacrit, a biosimilar of Epogen and Procrit, recorded $89 million of revenues in the first quarter versus $79 million in the previous quarter, reflecting continued strong uptake. In the United States, Retacrit recorded sales of $66 million. Pfizer expects additional contribution from biosimilars in 2020 with the launch of Zirabev, Ruxience and Trazimera in the year.

In sterile injectables, global revenues increased 15% operationally to $1.41 billion and U.S. revenues increased 22% operationally driven by increasing demand due to the COVID-19 pandemic and as Pfizer’s manufacturing recovery efforts started taking shape.

In the Upjohn segment, sales of key drug Lyrica declined 70% to $357 million due to multi-source generic erosion. Viagra sales declined 12% to $127 million due to generic competition.

2020 Guidance

Pfizer expects to see significant impact of the uncertainty related to COVID-19 in the second quarter. Pfizer expects minimal impact on patient starts for brance and Eliquis in the second quarter while for Vyndaqel and Xeljanz, it expects a drop in new patient starts in the second quarter. It also expects a temporary slowdown in Prevnar vaccinations. However, it expects a significant negative impact on sales of Chantix as it is administered on visiting a doctor.

However, it expects trends of patient visit to doctors, vaccinations and elective surgical procedures to improve in the second half of the year. It expects enrollment in clinical studies and new study starts to resume in the second half of the year.

Despite expectations of incremental negative currency impact, the company re-affirmed its financial guidance for 2020 for the present Pfizer as well as for the “New Pfizer”, after the Upjohn divestiture. The company, however, did update certain components of the guidance to reflect actual and anticipated impacts of the coronavirus pandemic.

Revenues are still expected in the range of $48.5 billion to $50.5 billion. The midpoint of the 2020 revenue guidance indicates no change from 2019 levels, excluding Consumer Healthcare and currency headwinds.

Adjusted earnings per share are expected in the range of $2.82-$2.92. Unfavorable impact of currency is expected to hurt 2020 revenues by $600 million (previously $200 million) and adjusted earnings by 4 cents per share.

Research and development expense guidance for present Pfizer was raised from a range of $8.1- $8.5 billion to $8.6 - $9.0 billion to account for the company’s coronavirus-related research efforts. SI&A spending guidance was lowered from a range of $12.0–$13.0 billion to $11.5 - $12.5 billion, primarily to reflect spending reductions related to COVID-19. Adjusted tax rate is expected to be approximately 15% in 2020.

The above guidance takes into account a full year of revenues and expense contributions from Biopharma and Upjohn.

The “New Pfizer” is expected to record revenues in the range of $40.7 billion to $42.3 billion, the midpoint of which indicates 8% volume-driven operational growth compared to 2019 Biopharma revenues. Adjusted EPS guidance for the “New Pfizer” is in the range of $2.25-$2.35. Pfizer’s Biopharma unit will become the “New Pfizer” following the expected separation of Upjohn.

Pfizer expects strong growth of key brands like Ibrance, Inlyta and Eliquis to drive sales in 2020. In addition, new brands such as Vyndaqel/Vyndamax, Braftovi, Mektovi and oncology biosimilars should bring in additional sales.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -7.69% due to these changes.

VGM Scores

Currently, Pfizer has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Pfizer has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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